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Insight

DTC: taking the direct route

As revenue growth for manufacturers continues to be challenging, some businesses are giving direct-to-consumer (DTC) initiatives an increased focus. Organisations on this path are innovating their customer proposition and their business operating model. This means introducing risk and cost. How should businesses considering this challenge approach it?

DTC offers manufacturers the opportunity to market, sell and distribute goods directly to the consumer, bypassing traditional wholesale and retail channels. This channel can bring businesses new opportunities as well as dilemmas – both of which vary, depending on the products and markets in question.

Moving from a CPG manufacturer to a DTC model is not a straightforward process, and manufacturers must ask themselves if this is the right decision. The many considerations include establishing a brand presence, building an e-commerce platform, potentially opening stores, distribution, fulfilment, and the ever-important last-mile fulfilment.

Advantages of going direct to the customer

Of course, taking the DTC route has its advantages, as well. If it didn’t, manufacturers wouldn’t be exploring it in the numbers they are. These include:

Control and clarity of brand – through product, packaging, and brand message

Full share of the ‘customer experience’ – brand alignment throughout the purchasing process

Speed to market – development, testing, and introduction without seasonal delays or other retail interruptions

Direct access to the customer – yielding a wealth of valuable data and insight

Assortment access – providing consumer choice from the full product range, not a limited sample

Cutting out the middleman: where will growth come from?

In our recent survey, leaders said DTC is expected to grow by 5% CAGR (Compound Annual Growth Rate) over 5 years mainly at the expense of the retail channel. This will give manufacturers increased margin and puts control of the future in their own hands.

Both Leaders and Followers say the wholesale or “agent channel” is not seen as relevant for future growth, while Followers remain steadfastly focused on the retail channel for very significant growth of 6.5% CAGR over 5 years.

Both sides cannot be right...

The real risk is clear. Bet the wrong way, and you’re in danger of losing market share. Don’t act, or fail to be responsive enough, and you could lose out on future customer acquisition since you may lack the necessary DTC supply chain capabilities.

Given the uncertainty, a good strategy is to place small bets (for instance, begin to build assets and capability) into the new DTC channel so that you can leverage its future potential.